Happy Friday everyone! 🤘 

Since the inception of this newsletter, I’ve covered the two main catalysts for Bitcoin next year, the first being the launch of several spot Bitcoin ETFs in the US (and subsequently in other countries such as 🇦🇺 ), and the second being the next halving event that will take place in April 2024. I also published an outlook on what the spot Bitcoin ETF could mean for the price of Bitcoin. 📈 

Today, let's address the question at the very heart of this newsletter:

Why Bitcoin? What is Bitcoin, why is it different from the rest of crypto, and why do I hold it? 🤔 

To be honest, I’m undecided about what Bitcoin is. 🤭 

Bitcoin is money.

But Bitcoin is also gold.

Since gold has historically been used as money, that's not necessarily a contradiction. But let's dig in.

First, let's look at why Bitcoin is money

Satoshi Nakamoto, the anonymous person or group who created Bitcoin, clearly intended to create Bitcoin as money. The title of the Bitcoin white paper reads: 'Bitcoin: A Peer-to-Peer Electronic Cash System'.

So Satoshi Nakamoto set out to create digital money. And I actually believe they have created the best money the world has ever seen. 💪 

Cathie Wood, founder and CEO of investment firm ARK Invest, sums it up well when she says that Bitcoin is the money revolution because it is the first global, private, digital, rules-based monetary system in history. (08:10)

That's a very dense statement. So let's take a closer look.

Bitcoin is:

• Global, because it's not bound by any jurisdiction. It can be used by anyone with a computer and an internet connection. It's borderless money.

• Private, because it is not run or backed by any government. It's the people's money.

• Digital, because it is the first digitally native currency. It's internet money.

• Rules-based, because there is a limited supply of 21 million coins that cannot be inflated. It's hard money.

Now, you might think that all of the above is true, but Bitcoin transactions are slow. 💤 

A transaction on the Bitcoin blockchain can take several minutes because a new block of transactions is only added to the blockchain every ten minutes or so.

So if Bitcoin is money, how can it compete with credit card networks that can process up to tens of thousands of transactions per second?

Well, our financial system is layered. 🧱 

When you swipe or tap your credit card, it may seem like the transaction is complete, but in reality, it hasn't been settled between your bank and the merchant's bank. Countries use settlement systems to allow banks and other financial institutions to settle their payment obligations.

In Australia, this settlement system is called the Reserve Bank Information and Transfer System (RITS), and it's owned and operated by the Reserve Bank. So when you swipe or tap your credit card to pay for a cup of ☕️ , the transaction takes place at a surface level and is fast, while the settlement takes place at a base level and is slow.

Think of Bitcoin as a settlement layer.

And the infrastructure for fast transactions on top of that slow settlement layer is already being developed.

The Lightning Network is a 🔧 to make Bitcoin transactions faster and more scalable.

One example of a company trying to use the Lightning Network to build a truly global payments network is Lightspark. It was founded by David Marcus, who has held senior positions at PayPal and in Facebook's financial services division. He might know a thing or two about global payments.

Marcus believes that we're still in the fax era of global payments. While he doesn't think that Bitcoin will be the currency that people use to buy things (because it's still in the price discovery phase and it's volatile), he does think that people will exchange fragments of Bitcoin (so-called sats, short for satoshis) to make small transactions on a global scale, in real-time, at virtually no cost.

If you want to play around with an Aussie Lightning Network app, start with the Brisbane-based Wallet of Satoshi. ⚡️ 

Now, let's look at why Bitcoin is gold

The main reason why Bitcoin is called digital gold is that its supply is limited and therefore it can be used as a hedge against inflation. While there are similarities between Bitcoin and gold, there are also some important differences. Take a look at the chart below.

As you can see, Bitcoin is superior to gold in many ways. This is why I want to point you to a term that might capture the essence of Bitcoin even better.

Exponential gold. 🪄 

The term was first used by Jurrien Timmer, director of global macro at investment firm Fidelity.

What he means is that, on the one hand, investors own Bitcoin as a store of value and a hedge against inflation, just like gold.

On the other hand, owning Bitcoin allows you to benefit from the adoption curve of a new technology.

In short, Timmer believes that Bitcoin gives you the best of both worlds, the downside protection of gold, and the upside opportunity of a tech stock. 🎉 

That's it for today. 🔚 

Over the next few issues, I’ll explore other forms of digital currency, such as altcoins, stablecoins, and central bank digital currencies (not necessarily in that order) to provide more clarity on how Bitcoin is different from everything else in crypto.

Have a great weekend everyone! 😎 

Before you go, please help me get better! 🙏 

Please drop me an email or dm me on Twitter or Instagram with any feedback or topics you'd like to see covered in this newsletter!

Thank you! 🤜 🤛